On Wall Street, Cash Is King For Worried Investors

Generally speaking, the saying is one that applies to cash flow, and where the accrual of dollars and cents to corporate coffers means that firms have ample firepower to weather downturns and act strategically though all phases of growth.

But now, amid market swings that would make the most trenchant investor skittish, cash is king in different ways. Where stocks once held favor, increasingly, the hard stuff holds sway.

The Wall Street Journal noted this week that many investors are looking beyond equities to assets that tend to have a bit of stickiness to their value (that’s our terminology here, not the paper’s). The volatility seems a part of daily life (make that hourly life?) when it comes to equities and even bonds, so perhaps it is no surprise that some seek shelter from the storm in cash.

Consider the fact that, as we have a day off on Wednesday from market vagaries amid former President George H.W. Bush’s funeral, yesterday the bellwether Dow sank more than 3 percent. Geopolitics took, and takes, center stage again, with sabre-rattling over tariffs and trade.

Amid that downdraft, Treasurys gained ground, and safety of government-backed securities was top of mind. In the U.S., at least, cash and cash equivalents are currying favor as interest rates rise, which means the return on those once staid holdings looks enticing. As noted by the Journal, the S&P U.S. Treasury Bill 3-6 Month Index (tied, of course, to shorter dated Treasurys) is up 1.7 percent for the year thus far. That’s relatively better than any other number of asset classes – cryptocurrencies need no mention here. As the Federal Reserve looks to continue to boost rates, cash becomes all the more attractive.

There could be torque to those returns, too, as asset fund managers have 4.7 percent of their holdings in cash, at least as measured last month – a bit above average, but below the 5.1 percent levels seen in immediately preceding months. Yes, the longer-term trend shows that stocks have outperformed cash, but amid the volatility of today’s markets, may we submit that the longer-term game might require a cooler, calmer mindset? If cash outperforms the aforementioned asset classes, it would be the first time since 1992, as Bank of America analysis has shown.

Here’s another saying: In the land of the blind, the one-eyed man is king. One percent-plus returns might once have made investors scoff, but now? Seems like cents makes sense.